Good News: Credit Card Delinquencies Are Falling

Consumers seem to be getting their debt under control as credit card delinquencies and late payments from June to September fell to 1.1%:

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TransUnion.com released today the results of its analysis of trends in the credit card lending industry for the third quarter of 2009. The report is part of an ongoing series of quarterly consumer lending sector analyses focusing on credit card, auto loan and mortgage data available on TransUnion’s Web site at www.transunion.com/trenddata. Information for this analysis is culled quarterly from approximately 27 million anonymous, randomly sampled, individual credit files, representing approximately 10 per cent of credit-active U.S. consumers and providing a real-life perspective on how they are managing their credit health.

Statistics

The national credit card delinquency rate (the ratio of bankcard borrowers 90 days or more delinquent on one or more of their credit cards) dropped to 1.10 per cent in the third quarter of 2009, down 5.98 per cent over the previous quarter. Year over year, credit card delinquencies remained essentially flat from 1.09 per cent in the third quarter of 2008. As expected, incidence of credit card delinquency was highest in Nevada (1.98 per cent), followed closely by Florida (1.47 per cent) and Arizona (1.35 per cent). The lowest credit card delinquency incidence rates were found in North Dakota (0.66 per cent), South Dakota (0.70 per cent) and Alaska (0.73 per cent). Mississippi saw the largest quarter-over-quarter drop of 13.4 per cent in credit card delinquency. In comparison to last quarter, where no state experienced a quarterly increase in delinquency rates, the third quarter saw 8 states log an increase.

Average credit card borrower debt (defined as the aggregate balance on all bank-issued credit cards for an individual bankcard borrower) drifted downward nationally 1.87 per cent to $5,612 from the previous quarter’s $5,719, and down 1.71 per cent compared to the third quarter of 2008 ($5,710). The highest state average credit card debt remains in Alaska at $7,699, followed by Tennessee at $7,039 and Alabama at $6,453. The lowest average credit card debt was found in Iowa ($4,225), followed by North Dakota ($4,449) and Wisconsin ($4,602).

The steepest increases in average credit card debt over the previous quarter occurred in Hawaii (+5.48 per cent), North Dakota (+0.71 per cent) and Alaska (+0.44 per cent). The District of Columbia experienced the largest drop in average credit card debt (-10.05 per cent), followed by Nevada (-3.16 per cent) and Delaware (-3.11 per cent).

U.S. Analysis

“For the first time in 10 years, third quarter national delinquency rates showed a decrease from the previous quarter, indicating a departure from the usual seasonal patterns. This movement could have occurred for a number of reasons. First, the national savings rate fell in the third quarter, possibly indicating continued consumer efforts to keep debt to a minimum and debt repayment under control in the face of an already depressed labour market. Consumers recognise that their credit cards are their primary purchasing vehicles in this economy,” said Ezra Becker, director of consulting and strategy in TransUnion’s financial services group. Second, many lending institutions modified credit card rules, fees and charges in the third quarter, in advance of the Credit CARD Act taking effect in February 2010. Those changes almost certainly impacted the dynamics of third quarter performance.

“An early indicator of the impact these term modifications will have on consumers and their credit habits in terms of debt and delinquencies will likely be revealed during the upcoming holiday season and immediately thereafter. However, the long-range effect is as yet unclear. In all events, it is anticipated that the market will experience a different lending dynamic and a material shift in the use of credit cards and marketshare across the industry. This recession has taught the U.S. consumer many lessons: shop around for the best deal, maximise the value of your spend and protect your day-to-day liquidity. While TransUnion still expects to see seasonal behaviour patterns in delinquency rates, the industry is still in flux as to what the new historical norms might be,” continued Becker.

Forecast

“With positive GDP now being reported along with an expectation that the national saving rate will drift downward in the fourth quarter, TransUnion sees its year-end forecast for 90-day credit card delinquency rate remaining steady at approximately 1.1 per cent nationally, with a possible drift upward in the beginning of 2010,” said Becker.

At the state level, Nevada is still expected to experience the highest delinquency rate by the end of 2009 (1.9 per cent), while North Dakota is anticipated to show the lowest delinquency rate (0.64 per cent).